U.S. Export Controls - Society of Corporate Compliance and ... · Jim Bartlett – Ex/Im Compliance, #1 ... Industry Best Practices ... • International Traffic In Arms Regulations

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Jim Bartlett – Ex/Im Compliance, #1

U.S. Export ControlsHow and Why to Comply

Chicago, Sep 14, 2010

Jim BartlettSenior Counsel, Export-Import Law

Northrop Grumman [email protected]

703-475-5294

[All materials in this presentation are solely the opinions of the presenter, and were not reviewed or approved by Northrop Grumman Corporation.]


RISK

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Why Comply?

• Because it is company policy.

• To protect sensitive technology.

• To increase Customer Confidence.

• To increase Employee pride.

• Earns a “Halo effect” with regulators.

• To avoid Bad Publicity.

• To avoid Delayed shipments.

• To avoid Loss of Ex/Im Privileges.

• To avoid Lost Government Contracts.

• To avoid Fines and Imprisonment.

Jim Bartlett – Ex/Im Compliance, #4 4

Non-Compliance Risk Levels:

Is compliance required or discretionary?

• LEVEL I: REQUIRED BY LAW

– Risk = Seizures, Fines, Jail, Debarment

• Example: Exporting without required license.

• Level II: Required by Company Policy

– Risk = Company enforcement

• Example: Unbadged visitors

• Level III: Industry Best Practices

– Risk = Lost efficiency & profits

– New Level II policies may be needed.

• Example: No written procedures on foreign visitors.

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U.S. International Business Laws

• U.S. SANCTIONS – Affect all Trade by US companies• Embargoes & Sanctions on certain countries

• Denied Persons and Entities

• EXPORT CONTROLS• Export Administration Regulations (EAR)

• International Traffic In Arms Regulations (ITAR)

• IMPORT CONTROLS• ITAR & Treasury Regs

• Customs Regs

• OTHER TRADE LAWS• Antiboycott Act (boycotts of Israeli products)

• Foreign Corrupt Practices Act (bribery of officials)

• Many others


Before trading internationally, ask:

“Are we prepared to pay the cost of compliance?”– Trade compliance is expen$ive,

so compliance cost must be estimated and added to your price for the product or service.

– If you can’t afford to hire trade experts and keep them trained, don’t trade internationally!

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Basic U.S. Import Requirements

U.S. Importers are required, at a minimum, to:

• File a Customs entry declaration, including:– Identity of US Importer and foreign source of goods

– Country of Origin & place of manufacture

– Date and terms of sale

– Components & HTS classification

– Quantity and/or weights

– Value (price paid or payable & currency)

– Duty rate & amount owed to CBP

– Other information, depending on items imported

• Verify that Country of Origin is marked on items.

• Pay applicable duties, taxes, & fees (HMF, MPF).

• Comply with certifications & licenses by other Govt agencies

• Retain documents proving the above for 5 years.


Basic Export Control Questions

• “Can we do any business with these persons?”

– Are they citizens of a restricted country?

– Are they or their company named a “Denied Party”?

– Are there any WARNINGS? (End use? End users?)

• “Are we exporting or re-exporting something?”

– The definition of “export” includes retransfers and giving technical

information to non-U.S. persons.

• “Which regulations? Local? U.S. OFAC, EAR, ITAR?”

– Classify articles and technology.

• “Do we need to get permission to do this?”

– Corporate? Gov. license? Is there an exception we can use?

• “What records and reports are required?”

• “What to do if we suspect a violation?”

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“Can we do business with these persons?”

Are they citizens of a

“Country of Concern”?

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The NGC “Countries of Concern” Policy

Notify the NGC Law Department before …

• Traveling to the listed CoC country and/or contacting potential customers, teammates, suppliers, or other parties relating to business opportunities;

• Retaining or proposing to retain any CoC consultant or Commissioned Sales Representative (CSR);

• Selling, transferring, or proposing to sell or transfer, goods, services, or technical data to a CoC citizen;

• Performing repairs or supplying of spares to any CoC vessel or flag carrier worldwide;

• Purchasing, importing, or proposing to purchase or import any goods, services, or technical data from a CoC;

• Establishing or proposing to establish any business presence or other investment in CoC; including any business opportunity or potential business opportunity in any strategic planning; or

• Taking or proposing any action to facilitate any of the above.

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Countries of Concern List A

Obtain review by Law Department before a transaction

with any of the following or a citizen, wherever located:

1. Cuba

2. Iran

3. Palestinian Authority / Hamas

4. Sudan

5. Syria


Countries of Concern List B

Obtain review by Law Department before an export to

any of the following countries EXCEPT when your

Export Control manager has determined no defense

article or defense service is involved:

6. Afghanistan

7. Belarus

8. Burma (Myanmar)

9. China

10. Congo (DRC)

11. Cote d’Ivoire (Ivory Coast)

12. Cyprus

13. Eritrea

14. Fiji

15. Guatemala

16. Guinea

17. Haiti

18. Iraq

19. Ivory coast (Cote d’Ivoire)

20. Lebanon

21. Liberia

22. Libya

23. Nigeria

24. North Korea

25. Rwanda

26. Sierra Leone

27. Somalia

28. Sri Lanka

29. Venezuela

30. Vietnam

31. Yemen

32. Zimbabwe

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Do U.S. Export Laws Apply to U.S. Companies Overseas?

• Yes!

• U.S. export laws are “extra-territorial” and apply world-wide to US Persons and Subsidiaries of US Companies:• Export of goods, technology, and services

• Re-export of U.S. exports or of foreign articles containing U.S. parts or technology

• Transfers by U.S. Persons of U.S. technology or services to Non-US Persons

• Dealing with sanctioned countries or Denied Parties;

• Brokering of ITAR-controlled transactions, even if the activity involves only Foreign Persons.


What is Subject to U.S. Export Laws?

• Items that cross the borders of USA.

• Transfers of controlled data or services to Non-US Persons, anywhere in the world.

• Dealings with restricted countries and denied persons.

• Brokering of defense articles or technologyby US persons, even though the articles contain no US parts or technology.

• “Facilitating” by US persons of above prohibited actions.

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Primary US Trade Control Agencies

Cuba

State Dept’s Directorate of Defense Trade

Controls (DDTC) controls defense articles,

defense services, and related technical

data, including most space-related articles -

-- ITAR.

Commerce Dept’s Bureau of Industry and

Security (BIS) controls “dual-use” items.

-- EAR.

Treasury Dept’s Office of Foreign Assets

Control (OFAC) oversees embargo and

sanction lists -- OFAC regulations.

Homeland Security Dept’s US Customs

and Border Protection enforces all

exports at US borders -- Customs


Jim ...There’s a question from the Audience:

“Can you summarize all the export controls -- you know, boil them all down in to one simple rule we can remember?”

“That’s a tough one, but YES, I think I can!”

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Export Control Laws . . .Summarized in one easy (unofficial) rule:

“You need permission to exportcontrolled technology or articles, or to provide technical or defenseservices to a Non-US Person(unless you qualify for anexemption), and you must keeprecords and make reports.”

(Bartlett’s Unfamiliar Quotations)


“Six Simple Steps to Export Compliance”

1. Learn the rules and keep current.

2. Classify the information to be exported under ITAR or EAR so you know which rules apply.

3. Screen for denied names, locations, and uses.

4. Get a license or qualify for an exemption.

5. Export: Do all the paperwork, comply with limitations on export authorization, file AES if required, and transfer the item, data, or service.

6. Keep records and make reports.

7. Oops! Mistakes? They happen! Report details to Law Dept for Voluntary Disclosure.

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Read “The Daily Ex/Im Update” every day!

[The Ex/Im Daily Update is published each business day by the Northrop Grumman Corporation Law Department, providing notice of all changes to ATF, CR, EAR, FACR, FTR, HTSUS, and ITAR regulations, plus related high-tech export/import news and comment. See subscription information below.]

EX/IM ITEMS FROM TODAY'S FEDERAL REGISTER:

1. Commerce/BIS Proposes Amendment of EAR, 15 CFR Parts 742 and 774, to Add New ECCN 6A981 for Passive Infrasound Sensors

2. DHS/CBP Advisory Committee on Commercial Operations of Customs and Border Protection (COAC) to Meet August 4 in Detroit

3. DHS/CBP Publishes Quarterly IRS Interest Rates for Overdue Accounts and Refunds on Customs Duties

OTHER GOVERNMENT SOURCES:

4. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

5. Ex/Im Items in Congressional Record

6. Commerce/BIS: Plane Cargo Inc of Houston to Pay $5,200 for Antiboycott Violations

NEWS:

7. BRC Trade Law: "Congress Toughens Sanctions against Iran, Provides Waivers Sought by Business Groups"

8. AAEI: "Exporters Hopeful that Change Is Coming -- National Security Advisor Updates Plans for Export Control Reform"

9. AIA Welcomes Administration's New Export Control Proposals

BLOGS, OPINIONS & LETTERS TO EDITOR:

10. L.B. Meyer & C.A. Kroll: "DoD Contractors and Subcontractors: Are You Complying with the New Flowdown Notice on U.S. Export Control Laws?"

11. R.C. Burns: "Former Air Force Colonel Charged With Illegal Arms Brokering"

Subscribe by request to: [email protected]. PS: It’s FREE!


Fundamentals of Export Controls

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Vocabulary

Common Concepts

&

Basic Terms

of

Export Controls

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Who are “US Persons” “Foreign Persons” and “Foreign Nationals”?

• '‘U.S. Person” means (ITAR 120.15)

• U.S. citizen

• Permanent resident with a “green card”

• Designated an asylee or refugee

• A temporary resident under amnesty provisions

• Any entity incorporated to do business in the U.S.• But the company itself may have FP employees

• “Foreign Person” means everyone else. (ITAR 120.16)

• Includes foreign businesses not incorporated in the U.S.

• “Foreign National” is the equivalent term used in the EAR (734.2(b)(ii)).

• But is often confused. Always ask if a “Foreign National” is a US Person or a Foreign Person.


Quiz Question:

Q: You will need an export license or exemption before you discuss the design of an EAR or ITAR controlled article with which one or more of the following persons?

(a) U.S. citizen (born in U.S.A.)

(b) Naturalized U.S. citizen (born in Iran)

(c) Iranian or Cuban citizen with a “Green Card”

(d) Asylee or refugee admitted to US residence

(e) Canadian employee of a U.S. corporation

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What is an “Export”?

• Sending or taking an article out of the U.S.;

• Disclosing (including oral or visual disclosure) of export-controlled information (technical data or technology) to a foreign person, in the U.S. or abroad;

• Re-exporting from foreign countries items or technology of U.S. origin. Performing an ITAR-controlled defense service on behalf of, or for the benefit of, a foreign person, whether in the United States or abroad.


What is a “Deemed Export”?

• EAR 734.2(b)(2): “Any release of technology or source code subject to the EAR to a foreign national. Such release is deemed to be an export to the home country or countries of the foreign national.”

• ITAR 120.17(a)(4): “Export means: ... Disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the U.S. or abroad.”• Access by foreign persons, even if they are employees of

U.S. companies and have valid U.S. work visas, is prohibited unless licensed or exempt.

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Examples of Exports

• Physical shipments across the U.S. border

• E-mails, fax, telephone calls to Foreign Persons

• Also to U.S. Persons outside the U.S., even if they are your own employees

• Hand-carrying papers or laptops containing technology

• Demonstrations, meetings, and training of Foreign Persons in U.S. or abroad

• Performing controlled services for foreign persons in U.S. or abroad


“Six Simple Steps of Export Compliance”

1. Learn the rules. (Get training! Keep up to date!)

2. Screen names and places.

3. Classify the item or information to be exported.


5. Export: Do the paperwork to ship the item, transfer the info, or perform the service.

6. Comply with requirements, keep records, and make regular reports.

7. (Extra step – Just in case): Report violations

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Classify Your Export

1. Is it listed on the U.S. Munitions List (USML)?

• If so it is a DEFENSE ARTICLE, regulated by International Traffic in Arms Regulations (ITAR), under State Department’s Directorate of Defense Trade Controls (DDTC).

• What is its USML Category?

2. Is it listed on the Commerce Control List (CCL)?

• If so, it is a “dual-use” item, and will be controlled by the Export Administration Regulations (EAR), under Commerce Department’s Bureau of Industry and Security (BIS).

• What is its Export Control Classification Number (ECCN)?

If you aren’t sure where it belongs, or just to be safe, submit a “commodity jurisdiction request” to DDTC (ITAR 120.4), or a “classification request” to BIS (EAR 748.3, 750.2).


Step 3 (cont): Classify Your Export

3. What will the “end use” of your export be?

• Some end-uses are prohibited (EAR 744) while

others may require a license.

• For example, you may not export anything to

persons making weapons of mass destruction

and missiles, without license, no matter what

your item is.

• Some items must be licensed, no matter what

their end use will be. (A bomb to be used only as

a doorstop must still be licensed for export.)

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U.S. Export Regulations

“ITAR” (Arms)• Restricts Exports

• Almost All Exports Require Permission

�License or Agreement

�Limited Exemptions

• Vague Regulations to Permit DOS to Interpret as Required

“EAR” (Dual Use)• Encourages Exports

• 90% Plus of Exports Maybe Made Without License

�“EAR 99” = No License Required

�Lots of License Exceptions

• Detailed Regulations with Logic Trees to Make Export Decisions



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Quiz Question on Classification:

Q: For the purpose of an export license, what is the difference between a shotgun with a 17-inch barrel and a shotgun with an 18-inch barrel?

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(2009)

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Sample ITAR & EAR Classifications

• Defense Items:

• ITAR Cat I(d): Combat shotguns, barrel length under 18”

• ITAR Cat XI(a)(6): “Computers specifically designed or developed for military application, and any computer specifically modified for use with any defense article in any category of the US Munitions List.”

• Dual-Use Items:

• ECCN 0A984: Shotguns, barrel length 18” or over

• ECCN 4A001: Electronic computers and related equipment, and electronic assemblies and specially designed components.







5. Export: Do the paperwork to ship the item, transfer the info, or perform the service.


7. (Extra step – Just in case): Report violations

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Step 4: To Get a License or Use an Exemption, You Must --

• Know the technical description of the article or technology

– to determine if it is on the USML, and if it is not,

– to classify it under the EAR.

• Know the location of the end-user

– and screen the country against embargoed country lists

• Know the identity of the end-user

– and screen his name against Restricted Party lists;

• Know what the end use will be

– and screen the use against restricted uses;

• Know who the intermediaries (agents, freight forwarders, wholesalers) will be

– and screen their names against Restricted Party lists;

• If you need a license, submit an application 60-90 days in advance.

– When you get the license, abide by provisos.


Here comes trouble!

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Common Trade Control Pitfalls

• Lack of management attention and direction.

– Assigning compliance functions to employees with low rank and no authority to stop a shipment or report a suspected violation.

• Lack of communication with US party.

• Failure to train .

– Training traffic employees but not engineers and sales & marketing.

• Acquirer’s liability for export/import control violations in M & A.

• Failure to audit and follow up.







5. Export: Do the paperwork to ship the item, transfer the info, or perform the

service.


7.(Extra step – You will need it!): Report violations

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Why Disclose Mistakes?

“Every exporter makes mistakes. A company that is not disclosing violations is either covering them up or is too stupid to know it has violations!”

- David Trimble, Former Director, DDTC Compliance


JMLFREIGHT

HOUGHTON CHEMICAL

INTERNATIONAL

ATT Communications

SWISSCO

Illinois Tool Works Inc.

BetAir

PA

NA

VIA

TIO

N

ICSICSINCINC

AVSAVS

INDUSTRIAL SCIENTIFIC INDUSTRIAL SCIENTIFIC CORPORATIONCORPORATION

OMEGA

CCP

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Why Voluntarily Disclose?

• Reduce penalties for violations.

• May avert a search warrant and seizure of records and computers

• Will build credibility with agencies and give company a “halo effect” regarding other issues.

• ITAR part 127: Voluntary Disclosure

• EAR 764.2: Voluntary Self Disclosure

• Customs 19 CFR 162.74: Prior Disclosure


When dealing with the Government: Always have an attitude of cooperation.

• It’s all about attitude. – Remember Cool Hand Luke?

• Warden: “What we’ve got here is failure to communicate!”

• You gotta get your mind right.

• Luke: “I got my mind right, boss!”

• You and the Government have the same goal: 100% compliance!

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(2009)

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The End.

Thank you for your attention!


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Export Control Acronyms

AECA: Arms Export Control ActAES: Automated Export SystemATF: Treasury Dept. Bureau of Alcohol,

Tobacco, Firearms and ExplosivesBIS: Commerce Dept. Bureau of Industry &

Security CBP: DHS Customs & Border ProtectionCCL: Commodity Control List CFR: Code of Federal RegulationsCJ: Commodity JurisdictionDHS: Dept. of Homeland SecurityDOC: Dept. of CommerceDOD: Dept. of DefenseDOJ: Dept. of JusticeDOS: Dept. of StateDSS: Defense Security ServiceEAA: Export Administration ActDDTC: Directorate of Defense Trade ControlsEAR: Export Administration RegulationsEAR 99: (ECCN for No License Required)ECCN: Export Control Classification NumberEEI: Electronic Export Information (replaced

SED)FCPA: Foreign Corrupt Practices ActFMS: Foreign Military Sales

FPPI: Foreign Principal Party in InterestFTR: Foreign Trade Regulations (replaced

FTSR)HTS: Harmonized Tariff ScheduleIEEPA: International Emergency Economic

Powers ActITAR: International Traffic in Arms RegulationOFAC: Office of Foreign Assets ControlSED: Shippers Export DeclarationSME: Significant Military EquipmentTAA: Technical Assistance AgreementUSML: United States Munitions ListUSPPI: U.S. Principal Party in Industry

Documents

U.S. Export Controls - Society of Corporate Compliance and ... · Jim Bartlett – Ex/Im Compliance, #1 ... Industry Best Practices ... • International Traffic In Arms Regulations